A social entrepreneur invests the little working capital she has to bring solar electricity to a community that –like 1.2 billion people worldwide– lacks access to electricity. The community used to use dirty, expensive and choking kerosene for light to cook by and for children to learn by. The entrepreneur knows she can recoup her costs, because people are willing to pay for reliable, high-quality, clean energy – and it will be even less than what they used to pay for kerosene. Sounds like a good news story, right?
Three months later, the government utility extends the electrical grid to this same community, despite official plans showing it would take at least another four years. While this could be good news for the community, one unintended consequence is that this undermines the entrepreneur’s investment, wiping out their working capital, and deterring investors from supporting decentralized clean energy projects in other communities that lack access to electricity.
This story illuminates just one way in which policy and regulation is critically important for entrepreneurs striving to increase access to clean energy. Knowing where the grid is going to go – and when – is an important criterion to help them target their investments where they’re needed most.
This was just one of the issues discussed by a panel of entrepreneurs and social enterprise experts at the eighth annual Asia Clean Energy Forum this June, which focused on how we can develop the policy and regulatory conditions to empower energy access entrepreneurs to massively scale up their delivery of clean energy access.
While delivery of electricity through centralized transmission and distribution grids forms the backbone of most national power systems and is a critical part of the solution to the world’s energy access challenges, small-scale clean energy entrepreneurs can also play a valuable role. These types of energy providers reach consumers who want access to clean energy services, and for whom the grid may be an uncertain prospect. Therefore, it’s important that policy and regulatory conditions support both top-down and bottom-up approaches to secure sustainable energy for all communities.
Securing Clean Energy for All
The scope of this issue is huge: in our recent issue brief, “Implementation Strategies for Renewable Energy Services in Low-Income, Rural Areas,” we identified 6 different categories of innovative business models for social enterprises delivering energy access. Each of these models faces a distinct set of regulatory and policy challenges. Regulatory and policy issues also impact technologies differently: an enterprise focusing on biomass mini-grids may face challenges that are far different to those faced by a purveyor of solar lighting.
Despite this diversity, in my conversations with entrepreneurs at the Asia Clean Energy Forum, there was an incredible amount of shared concern around a few key policy and regulatory issues. Below are some that were most frequently cited:
- Subsidies for fossil fuels or grid-provided electricity need to be addressed to level the playing field for clean energy access: Subsidies for kerosene or other dirty energy can mask the true cost of energy services, and make clean energy seem unattractive by comparison. Likewise, grid electricity – and especially transmission and distribution infrastructure – is often heavily subsidized. Leveling the playing field for clean energy access alternatives is important to ensuring that consumers have the best options available to them.
- Streamlined, standardized product certification could boost consumer confidence in clean energy options: Poor-quality products flooding the market have led to negative experiences among users, and can undermine the efforts of honest brokers selling good-quality products and services. Developing standards for manufacturers can help to enhance trust in off-grid technologies. However, according to some of the entrepreneurs at the Asia Clean Energy Forum, even some well-intentioned programs to help certify products have had long certification delays, have lacked real standardization, and have tended to support vendors with government connections, so it’s important to get these programs right.
- Clear planning on grid extension could reduce risk to energy access enterprises and investors: The story at the beginning of this post illustrates why this is of importance to entrepreneurs. Increased transparency and public participation in power planning process is a key component of effective electricity governance.
- Transparent, easy-to-administer end-user financing could help: The example of Bangladesh is perhaps the best-known model, where IDCOL, a state-owned development finance institution dedicated to financing infrastructure, developed a program to support household-scale solar electricity. This program provides financing support to consumers, reducing interest rates and making it easier for end-users of solar home systems to repay their loans to microfinance institutions.
Overcoming Energy Access Challenges
Many of these policy and regulatory issues are the same ones people have been talking about for the past 10 years – but there’s reason for optimism; a few things have changed in that time, including:
- Technological innovation. For example, we have better and far more affordable solar panels than we did even 5 years ago.
- Innovative business models. Innovative business models for delivering clean energy access have proliferated, as illustrated in our recent issue brief “Implementation Strategies for Renewable Energy Services in Low-Income, Rural Areas.” There are also more innovative avenues of finance for the sector. Political momentum. The Sustainable Energy For All Initiative is just one important example of the high-level support for rapidly achieving near-universal access to clean energy services. Although much must be done to deliver on these initiatives’ promise, momentum appears to be growing.
- Energized entrepreneurs. My own experiences at the Asia Clean Energy Forum introduced me to the new generation of entrepreneurs who are highly motivated to meet the energy access challenge.
While entrepreneurs can do a lot to advance clean energy access, we need to establish the right policy and regulatory conditions to unlock their full potential and catalyze a clean energy access revolution.
Earlier in the week at the Asia Clean Energy Forum, we heard from entrepreneurs in the Philippines about the energy needs of fisherman. They go out at night with kerosene lanterns to attract fish, and spend $7 a night on kerosene, or about $200 per month. Forty percent of the fish they catch today goes toward the purchase of kerosene. Long-lasting, durable solar lanterns tailored to local needs are now helping fisherman realize great increases in their monthly income.
These are the stories that demonstrate why energy access is a development imperative. We also have an incredible opportunity to deliver it in a way that’s truly sustainable. Shaping policy and regulation to help clean energy entrepreneurs succeed is an important piece of the puzzle in realizing that opportunity—and in achieving the ambitions of Sustainable Energy for All.